As the market flatlined, Meggitt was the worst casualty as analysts cast doubt
on whether the aerospace and defence group could attract a suitor.

Back in September, there was speculation that America’s United Technologies could be poised to bid for a smaller player, such as Goodrich. That prompted analysts to wonder whether, given increasing pressures on defence spending, such a bid could prompt a round of tilts at other targets, such as Meggitt.

But, Credit Suisse was not convinced. Writing a lengthy tome on Meggitt on Tuesday, it argued: “We agree that Meggitt’s strong cash flow and margin attributes make it an attractive target, but we question the strategic rationale and ease of integration within a larger player’s portfolio.”

“Meggitt now has an extremely diverse range of offerings across civil aerospace, military aerospace, military ground applications, energy and other markets. We believe this could be costly and difficult for a potential acquirer to integrate,” they added.

Credit Suisse was concerned too about the potential for further pressure on defence budgets, particularly in the US. “Out of a number of possible scenarios we present, we are moving towards expectation of prolonged, deep cuts to the base budget over the next five years,” said the broker.

That prompted analysts to slash their rating on Meggitt to “underperform” from “outperform” and lower their price target to 330p from 410p.

Meggitt duly dropped 17.1 to 366.4p, making it the sharpest blue-chip faller as the benchmark index struggled to gain any momentum. After Standard & Poor’s dampened spirits with its warning that it could cut the credit rating on 15 out of 17 eurozone countries, the FTSE 100 edged up only 0.76 points to 5,568.72.

The FTSE 250 fared worse, sliding 55.98 points to 10,312.28 as retailers suffered heavy losses. After grim figures showed that like-for-like retail sales last month fell 1.6pc, a profit warning from German hypermarket group, Metro, sent further shivers through the high street.

The world’s fourth-biggest retailer, which runs cash and carries, hypermarkets, electrical goods and department stores, cautioned that Christmas trading had started slowly and that the eurozone debt crisis was undermining consumer confidence.

That hurt Home Retail Group and Kesa Electricals, which slid 8.65 to 92.25p and 5.3 to 81.7p respectively. Homewares retailer Dunelm slid 24.9 to 429.4p.

Although Metro’s warning left traders expecting to find coal in their stocking this Christmas, analysts at Morgan Stanley suggested that the festive period was “likely to be difficult, but not dire”. “Investors don’t need us to tell them that macroeconomic conditions are poor and consumer sentiment very weak,” said the broker. “However, we are mindful that consumers decided to 'protect’ Christmas in the fourth quarter of 2008 and we expect them to do so again this year.”

Joining the retailers in the doldrums was Admiral. As the motor insurer continued to suffer from bearish comments made by analysts last week following its November profit warning, it sank 37 to 890½p.

While retailers beat a retreat, Wolseley advanced 69p to £19.72 after the building supplies group posted a jump in first-quarter trading profit and pledged to keep costs on a tight leash.

Also helping to prop up the benchmark index were defensives such as drug makers, with GlaxoSmithKline rising 28p to £14.27½ and AstraZeneca putting on 28½p to £29.37.

Consumer goods group Unilever gained another 12p to £21.24 as analysts continued to chew over its investor seminar in Turkey last week. Although management had played down any potential for spinning off brands, Martin Dolan at Espirito Santo, was considering 'what if’.

Pointing out that spin-outs by other consumer groups have created “serious value” for investors, he suggested that Unilever should consider spinning out its food businesses – including Knorr and Hellmann’s – which are “low growth, mature market dominated local businesses”.

He argued that this would heighten the focus on Unilever’s other food brands, such as ice cream, and its personal care division, increasing the company’s exposure to emerging markets.

Although hi-tech plastics company Victrex chalked up a 26pc rise in annual profit, it fell 44p to £11.48. Mouchel, however, crept up 0.49 to 9.9p after the infrastructure company appointed turnaround specialist David Shearer as chairman to revitalise the loss-making company.

Aim-listed European Goldfields soared 115½ to 763p amid speculation that the miner could have attracted a suitor. Just before the bell, the company confirmed it had received preliminary approaches about a potential deal.

Investec and Inmarsat poised for demotion

Investec and Inmarsat are poised to leave the benchmark index, making way for two Russian giants.

Evraz, the steel maker backed by Chelsea football club owner Roman Abramovich, and silver producer Polymetal are both set to enter the blue-chip index at the latest reshuffle.

According to indicative positions published by index compiler FTSE Group yesterday, Irish building materials group CRH is also set to enter the top flight.

As a result, Lonmin, a platinum miner, could move into the mid-caps.

Based on Tuesday’s data, a FTSE Group committee will on Wednesday make the final decision on which companies move index.

Their decision will be announced after the market close and the changes will come into effect after the bell on Friday, December 16..

The Telegraph Investor

Editor's comment:

Priced to be great value for new investors and those with large portfolios.